Manufacturers Moving Plants Out of Asia

Firms seek to cut costs of shipping from Far East.

By Daniel P. Bearth

The recent spike in oil prices and a drop in the value of the U.S. dollar are leading some manufacturers to shift operations to Mexico, and even back to the United States, as they try to offset the rising cost of shipping goods from factories in Asia and elsewhere to customers in North America, trucking and logistics officials said.

“The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today,” said a report by economists at CIBC World Markets, a Canadian investment bank.

The CIBC article said that rising transport costs are causing a slowdown in the growth of world trade and a “fundamental realignment in trade patterns.”

Imports from Mexico and Canada are up 9% over the past year, while Asian imports are down, said Scott Szwast, director of global freight services marketing for parcel carrier UPS Inc.

“Labor is still significantly cheaper in China than in the U.S. or Mexico,” Szwast said, “but when you add together labor, fuel, transportation, compliance costs and increased inventory because of the use of slower transportation modes, total distribution costs have risen to a level that it is forcing companies to reconsider where they source products from.”

Derek Leathers, senior vice president of Werner Enterprises, Omaha, Neb., said the higher cost of moving goods from China to the United States is forcing companies to consider “near-shore” alternatives.

“Customers have definitely informed us they are sourcing more from Mexico,” he said.

In addition to production shifts to Mexico, some manufacturers are opening new plants in the United States, to be closer to their customers.

Swedish retailer Ikea opened its first U.S. factory in Danville, Va., earlier this year to supply wood bookcases, tables and entertainment systems to stores in North America.

At a plant in Haleyville, Ala., Exxel Outdoors is increasing the production of sleeping bags by 50% over the next year. Chief Executive Officer Harry Kazazian said he is shifting production from Shanghai, China, to the United States, in part because the cost of shipping containers has doubled over the past three years.

“It’s cheaper to make sleeping bags in the U.S. now,” he told Light & Medium Truck.

Other companies making investments in new manufacturing plants in Mexico include U.S.-based Whirlpool, Korea’s LG Electronics and Samsung, which is building a $300 million factory north of Mexico City to make refrigerators, primarily for the local market, said Armando Beltran, general director of Schneider National Mexico, a unit of U.S.

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